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Psychological Factors in Financial Planning

by | Aug 1, 2023

Our approach to wealth management is focused on you, your goals, your financial situation, and whatever we can do to make your life easier. Our recommendations address a wide variety of factors, some of which may conflict with each other. That requires us to be clear about the different paths that your strategy could follow and the rationale for what we suggest.

As advisors, we often come across situations where the numbers may argue for one course of action, but a client’s psychology or comfort level may argue for another. In financial planning, your own psychology can be just as important as what the numbers tell us.

For example, if you’re in your 30s or 40s, it may be perfectly suitable for you to have your retirement accounts invested very aggressively to maximize long-term growth, but not if you’re uncomfortable with the short-term volatility that entails. If you’re going to lose sleep or abandon your investment plan when the market drops 30% (which happens from time to time), that aggressive investment allocation probably is not right for you, even if it could lead to higher long-term returns.

In building a financial plan, it’s critical to look beyond just the numbers and ensure that the plan reflects your values, goals, and personal preferences. If there’s a case where you may be leaving money on the table for the sake of psychological factors, it’s important to discuss it openly with your advisor and make sure that you understand the trade-offs. But you should never be pushed into something that you don’t understand or that you’re not on board with.

Our job is to get to know you and to help you accomplish your goals within the boundaries of your own comfort zone. Please be in touch if you’d like help building a financial plan that reflects who you are.